The Insidious Political Power of Minimum-Wage Laws

One of the great spectacles of the day is the sight of French workers engaged in violent protests, aggrieved that their economic positions are being undermined by the cheap labor of foreign workers — Germans, in this case.

A bit of advice for the workingmen of France: When the people who make Mercedes-Benz and Leica are the cheap foreign labor you’re complaining about, perhaps it is time to reconsider some basic economic assumptions.

The dispute pits the French farmers’ unions — because of course French farmers are unionized — against the German dairy cartel, which bears the Teutonically sinister-sounding name Milchindustrie Verband. It sounds like the sort of outfit that ought to employ Ernst Stavro Blofeld. In fact, everything sounds 27.5 percent more evil in German; a recent confrontation between German dairy farmers and commercial buyers featured the slogan “Milch Ist Macht!” — “Milk Is Power!”

As the International Labour Organization runs the numbers, what this means is that workers in France, the nation with the eleventh-highest wages in the world (averaging $2,886/month), is feeling victimized by unfair competition from Germany, the nation with the 13th-highest wages in the world (averaging $2,720/month). The free-trading nations that dominate the top spots on the list — the United States, the United Kingdom, Norway, etc. — do not seem to believe themselves much victimized by relatively low-wage workers in Sweden and Canada. Odd, that.

As welfare-state models go, the best ones seem to be the most straightforward: Impose high taxes on one end and write large checks on the other. This template has the added benefit of being honest and transparent, which is why no politician willingly embraces it.

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The worst kind of welfare state is the welfare state that is ashamed of itself and therefore feels obliged to pretend to be something it isn’t. Instead of forthrightly taxing individuals and businesses and converting that revenue to welfare benefits in an honest and transparent way, covert welfare statists usually attempt to disguise welfare payments as wages. Artificial wage increases imposed by law perform the same function as ordinary welfare benefits — transferring income from politically disfavored groups to politically favored groups — but the revenue doesn’t show up on the government ledger as taxes and the outlays don’t show up as spending. Everybody in government gets the opportunity to engage in a little delicious moral preening about how they’re doing the right thing for the hardworking people of wherever while maintaining fiscal discipline, as if the underlying facts of the policy — “Patron X shall give Client Y at least Z amount of money” — weren’t fundamentally identical to those in a transparent welfare state.

Which is to say, laws mandating wages and benefits beyond market prices are political money laundering for unpopular welfare payments. They work brilliantly: Americans have a generally low opinion of welfare programs, but large majorities of us — including majorities of Republicans — support raising the minimum wage.

The problem, as coddled French dairymen and millions of unemployed Americans ought to know, is that a wage is a price — the price of a particular quantity of labor — and when prices go up, demand goes down. Politicians may break all sorts of laws, but they cannot break the law of supply and demand.

In the U.S. context, what this means is that the left hand of government spends its time adding to the cost of employing Americans with wage and benefits mandates while the right hand of government spends its time trying to enact legislation that will prevent these higher costs from having their natural effect, e.g. by restricting trade with those perfidious low-wage foreigners in Germany and Sweden, or by bribing and bullying companies into knuckling under to political demands. This produces a labyrinthine network of mandates, penalties, and subsidies that is so complex as to be incomprehensible to anybody without the time and resources to make a careful study of the matter, which in effect renders the architecture of this secondary welfare state invisible to the typical voter.

The current fashion among progressives is the demand for a $15/hour minimum wage. Bernie Sanders supports it, Elizabeth Warren supports it, Martin O’Malley supports it, and Hillary Rodham Clinton . . . won’t quite answer the question. The Congressional Budget Office estimates that a $15/hour minimum wage would throw 3.3 million Americans out of work. Jonathan Meer and Jeremy West of Texas A&M put the number at 6.6 million lost jobs; Jeffrey Clemens and Michael Wither’s estimate for the National Bureau of Economic Research puts the number of lost jobs at 16.8 million. (More here.) If those jobs do in fact disappear, the politicians will try to redress this development with more economy-distorting subsidies and penalties, and when these fail you can be confident that Bernie Sanders and Donald Trump will make a lot of noise about the wily Chinese and dirty Mexicans “stealin’ our jobs!”

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